Question

When nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, the quantity of money demanded for transactions purposes will be:

Answer 1

The quantity of money demanded for transactions purposes can be calculated by dividing the nominal GDP by the velocity of money. In this case, the money demand will be $200 billion.

Step-by-step explanation:

The quantity of money demanded for transactions purposes, also known as the money demand, can be calculated by dividing the nominal GDP by the velocity of money. In this case, the nominal GDP is $800 billion and each dollar is spent four times in the economy over a year, which means the velocity of money is 4. Therefore, the quantity of money demanded for transactions purposes will be $800 billion divided by 4, which is $200 billion.